USD/CAD retreats towards 1.2800 despite softer oil prices

• USD/CAD remains pressured around daily low after snapping seven-week uptrend.
• Oil prices struggle to justify escalation in geopolitical fears, optimism in China.
• US dollar stays on the back foot amid firmer sentiment, less support for 75 bps rate hike move.
• Monthly PMIs, Canada Retail Sales and FOMC Minutes are the week’s key events.

USD/CAD eyes further losses as bears attack the 1.2800 threshold during the initial Asian session on Monday. In doing so, the Loonie pair pays little heed to a pullback in oil prices, Canada’s main export, while also cheering the softer US dollar, amid a mostly quiet session.

WTI crude oil prices print the first daily negative in three, down 0.70% around $109.15 by the press time, even as the Russia-Ukraine crisis escalates. The reason for the black gold’s latest weakness could be linked to Germany and Italy’s approval of Russia gas payment, getting the nod from Brussels, as well as global oil producers’ rejection of the more output cut than already discussed.

On the other hand, the US Dollar Index (DXY) flashed the biggest weekly loss since January, not to forget snapping a six-week uptrend, as market players seemed to have bored with the 50 bps rate hike comments from the Fed policymakers, including Chairman Jerome Powell. Also keeping the greenback under pressure was the latest headline economics that flashed mixed numbers. It should be noted that the hawkish comments from the European Central Bank (ECB) have recently gained major attention and exerted additional downside pressure on the greenback.

Furthermore, Shanghai’s gradual unlocking and the mainland’s reduction in the covid cases, as well as the virus-led deaths, underpin optimism at the Antipodeans, due to China’s status as the world’s largest industrial player.

Amid these plays, Wall Street closed mixed but the S&P 500 Futures print mild gains by the press tie. Further, the US 10-year Treasury yields remain softer around 2.78 at the latest and weigh on the US dollar.

That said, USD/CAD traders may rely on the risk catalysts and oil prices for immediate directions but major attention will be given to this week’s PMIs and Minutes of the latest Federal Open Market Committee (FOMC) for clear directions. At home, Canada’s Retail Sales will also be important to watch as the Bank of Canada (BOC) remains hawkish.

Technical analysis

USD/CAD holds onto the previous week’s downside break of an upward sloping trend line from late April as well as the 21-DMA, respectively around 1.3050 and 1.2875, which in turn directs the sellers towards a confluence of the 50-DMA and 100-DMA, surrounding 1.2700.